Conventional wisdom says that shares are riskier than bonds – and in particular, government bonds are often seen as the ultimate safety. If you finally borrow money to the government, you expect to get it back, plus steady interest. But in a world of increasing costs of living, the definition of “safety” deserves a further look.
In fact, one high-yield Canadian dividend stock Bank of Nova Scotia (TSX: BNS)-ZOU can be a safer investment in the long term than certain government bonds. This is why.
Bonds can feel safe, but offer limited efficiency
Bonds offer stability, especially by the government, but that comes at the expense of a lower income and a limited growth potential. For example, a Canadian government bond that matures on December 1, 2030 acts with a discount of approximately $ 87.83, with a coupon of only 0.50%. Keep it up to the term and you earn a total annual return of approximately 3.0%.
Although that is not terrible for an investment with a low risk, it hardly keeps pace with long-term inflation, which is on average about 2-3% per year in Canada. Even worse, if you have to sell before the term and interest rates have risen, your bond may have lost the value in the secondary market.
Bonds can lose purchasing power over time, and in a world where inflation quietly erodes wealth, the real risk may not be volatility – but underperformance.
Bank of Nova Scotia: High yield and long -term growth
Bank of Nova Scotia, on the other hand, currently offers a dividend yield of 5.6% against a share price of around $ 78. That is almost double the return of the government bond, and you do not have to wait until the term to take advantage – the income starts to flow immediately and is extended specifically.
BNS has a strong dividend history, which has paid uninterrupted dividends since 1833. The current payment ratio is approximately 63% of the adjusted income, which suggests that the dividend is well covered and sustainable. Moreover, the price-gain ratio of the bank (p/e) of 11.5 in line with historical averages is that shares are reasonably appreciated.
Yes, shares come with price volatility. Bank performance can be influenced by economic cycles, standard values of loans or legal changes. For longer periods, the assets of the bank to grow income and dividends, however, a clear advantage for investments with fixed -income incomes. As the income rises, the dividend can do that – something that bonds simply cannot do.
Safer but with a long-term image
It may sound contrary to say that a share is safer than a government bond, but it depends on how you define safety:
- Head protection: Shares are more volatile, but investors can exit fluctuations in the long term.
- Income: BNS pays almost twice the income of a similar bond, based on an investment period of approximately five years.
- Protection of inflation: potential for profit growth that could lead to dividend growth, help protect purchasing power.
Earlier this year, BNS fell in the low $ 60s and presented a great access point. Even at the current level it is a good introduction for long -term investors, especially those who are willing to buy on weakness.
If your time horizon is at least five years old and you want to generate reliable income with inflation-knocking total returns, Bank of Nova Scotia may not be a safer alternative to bonds-its.
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